19 December 2006

Bureaucrats and lobbyists versus the people

New Zealand has released a draft forestry strategy to take into account climate change. Or rather, the fossilized science underpinning Kyoto – and that’s the problem. There’s a lot of internal consistency: to tax nitrogen fertilizer so as to reduce emissions of nitrous oxide; to spend NZ$100 million over five years to encourage new forest plantings. There’s also a lot of elegant economics: tradeable permits for agricultural emissions and offset schemes from tree planting.

All very worthy and, as I say, entirely consistent with the premises underlying Kyoto.

Unfortunately these premises are flawed. Kyoto is not, ultimately, concerned with climate change. Its sole focus is to reduce net anthropogenic greenhouse gas emissions. They are not at all the same thing:

Reducing anthropogenic greenhouse gases might not be the best way of reducing the concentration of greenhouse gases in the atmosphere;

Reducing the concentration of greenhouse gases in the atmosphere might not be the best way of preventing or mitigating climate change; and

Preventing climate change might not be the best way of preventing the worst effects of climate-induced catastrophe.

Even if our ultimate goal were solely to reduce net greenhouse gas emissions, Kyoto would be inefficient. Kyoto, and the New Zealand Government, are telling us not only that greenhouse gas emissions must be cut, but how to cut them. They are putting in place their own fixed assumptions about the relative contributions that greenhouse gases make to the climate change problem, and similar assumptions as to the contributions that planting trees rather than crops make to solving it. Such assumptions are based on old science: it is in the nature of top-down, micro-managed, bureaucratically administered regimes that they cannot readily adapt; and our scientific knowledge is expanding very rapidly indeed. Even accepting the premises of Kyoto, then, the current responses are inherently inflexible and inefficient – which matters a lot, given the colossal costs involved.

How would Climate Stability Bonds be better? First, they wouldn’t assume that cutting greenhouse gas emissions is the best way of tackling climate change. But even if it were found that doing so is the best way, holders of Climate Reduction Bonds would have strong incentives to do be more efficient. They would want and would have wider scope for action. For example, they wouldn't be bound by political correctness or realpolitik of the sort that exempts some countries that emit huge quantities of greenhouse gases from any disciplines at all. They would simply buy these regimes off or otherwise undermine opposition to the necessary disciplines.

There is an important presentational aspect too. Kyoto doesn't focus on a desirable outcome: it's focused on processes and activities. So it is now so politicized, and its money flows so unpalatable, that it is seen as an imposition; in the rich countries it's seen as an imposition by the greenies on everyone else, and in the poor countries it's seen as an imposition by the rich countries on them. And to industries, such as the forestry industry, it’s seen as a government-imposed threat to their wealth, or an opportunity to seek subsidies from that same government. Either way, it diverts the attention of some clever people away from managing their business efficiently, and into lobbying the government for special treatment.

In the proverbial battle between elephants, it’s the grass that gets crushed. With governments and the other Kyoto lobbyists, success is defined bureaucratically. As the New Scientist in its editorial of 25 November put it: “Some at the heart of the [UN climate] negotiations claim that the [recent meeting] in Nairobi has been a success. That’s baloney. The conference persuaded itself that a review of the [Kyoto] protocol in 2008 is a major outcome, but to an objective outsider it looks more like an excuse for inaction.” And for corporate interests, success is measured in terms of how much they will gain or lose as a result of whatever schemes, allegedly to mitigate climate change, are put in place by governments. While these games are being played, the losers, as so often, are we, the people.

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Social Policy Bonds

See the Social Policy Bonds website for overviews and links to articles, papers, news and more about Social Policy Bonds. Click on the image below to download a 2400-word article, published by the Institute of Economic Affairs, London.

Social Policy Bonds in 2400 words

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Social Policy Bonds in the media

9 October 2015: An article by Greg Bearup on the genesis of the Social Policy Bond idea, and application of a version of it in Australia appears in the Weekend Australian Magazine. (The article can also be downloaded as a pdf from here.)

October 2013: Professor Robert Shiller of Yale University, is named as one of the three winners of the 2013 Nobel Prize in Economics. His Nobel Prize lecture (pdf) delivered on 8 December, mentions Social Policy Bonds. Professor Shiller has for many years encouraged my work on Social Policy Bonds, beginning in late 1996 when he sent me this letter.

3 May 2012: An audio talk by Nobel Prize winner Professor Robert Shiller at the London School of Economics, in which Social Policy Bonds are briefly mentioned, is available here.